As farmers struggle with wet fields and cooler than normal temperatures this spring in their seasonal struggle to get crops planted, Jim Ruen hears daily reports from clients, friends and relatives that make him fear history is about to be repeated.
For starters, agronomists have theories for various crops about how much of the potential yield is lost by each day of delayed planting. And secondly, Ruen knows that farm production costs are rising daily as well; the same world commodity markets driving up prices for farm crops are driving up production expenses for fuel, fertilizer and farm chemicals while the land market follows the same path.
Ruen has been there, seen that and done that. Pick whatever cliché comes to mind. He now operates Edge Communications at Lanesboro in southeastern Minnesota after serving as chief spokesman for predecessor banks of what is now AgriBank in St. Paul in the 1980s. At that time those banks lost $1 billion on farm foreclosures and farm loans. Only one huge Chicago commercial bank, which didn’t survive, lost more money from that farm financial crisis.
Sharing those memories, Minnesota 2020 issued the report “Minnesota’s Bubble Economy: The critical need to prevent our farmland boom from busting” on May 6 that called for caution in farm borrowing and called on the state and Minnesota Extension Service to prepare its debt mediation services for another farm financial bust. Current farm economic conditions are strikingly parallel to that earlier era when farm debt rose with farm income expectations during the 1970s only to crash in the following decade.
The report noted that land costs have doubled and in some cases tripled during the past two years as world commodity prices spike and the value of the U.S. dollar sinks in world trading. These higher costs are reflected in land rents as well, Ruen said, noting that a neighbor of his recently rented land for three years at $200 an acre for each year. That will most likely be a manageable cost this growing season, he said, but it is a high cost should farm production expenses continue to climb or if farm commodity prices moderate over the next three years.
Farm economists warned in January that farmers might face production expenses of $350 or more an acre this year, Ruen recalls. A client farm supply cooperative just informed him that current expenses in the planting season have climbed to $750 an acre for corn, $550 an acre for soybeans and $500 an acre for wheat. The latter is especially high and not typical of Minnesota production costs because that specific growing area needs disease preventative treatments.
Regardless, what does that suggest for farm profits and whether the bubble for land costs are sustainable? Futures prices for corn, our biggest crop in Minnesota, closed at nearly $6.15 per bushel on Monday at the Chicago Board of Trade. Assuming a farmer could lock in that price for the entire crop, a yield of 120 bushels an acre would be necessary just to pay for farm inputs this season.
That appears manageable. Minnesota farmers have averaged higher corn yields than that in recent years. But the delayed planting is reducing the potential yield each day, and risks of good yields are high based on climatologic forecasts of drought for this summer. On top of that, Ruen shudders to think what propane gas costs might be at harvest if the corn and soybean crops have high moisture and need expensive drying for storage.
Count Ruen among those experienced voices that warn a crash is coming, with the questions “when,” not “if.”
Minnesota needs to prepare.